Karen Kelly was quoted in a Forbes article titled “The Mission for the IRS’s Cool Cats: More With Less?”
The article discusses that the Trump administration is using IRS Criminal Investigation to investigate fraud in Minnesota, despite diminished IRS resources. Treasury Secretary Scott Bessent referred to IRS-CI agents as the agency's "cool cats" and praised enforcement efforts in Minnesota and other states, and noted their expertise at rooting out fraud and abuse. Citing billions of dollars diverted by fraudsters that the CI division helped recover through financial investigations and criminal prosecutions, the Treasury also announced that the department initiated audits of financial institutions suspected of laundering fraud proceeds and created a task force to investigate misuse of pandemic-era incentive programs and 501(c)(3) status.
Despite the confidence the Treasury secretary has placed in IRS-CI, the article notes that the IRS may lack sufficient resources for nationwide fraud investigations as tax season commences, among the agency’s numerous other priorities. The CI Division reported in December that they had 2,189 special agents in fiscal 2025, with 954 professional staff, which is a decrease from 2,290 special agents and 1,184 professional staff in fiscal 2024.
The article paraphrases Karen’s explanation of how IRS-CI works. “IRS-CI acts as the tip of the spear in a financial investigation because it can follow the money wherever it goes,” said Karen E. Kelly of Kostelanetz LLP. “Once CI is on the trail, the next step is opening a grand jury investigation and issuing subpoenas to financial institutions and entities where the funds were deposited, withdrawn, or spent. Kelly noted that because corporations don’t have a Fifth Amendment privilege, practically every document they have is subject to subpoena. That means voluminous records will be examined, along with every document filed with the IRS or other governmental entity where claims about the money are made under penalties of perjury. ‘Making false statements to the United States is the loci of the criminal action and where you build the heart of a federal case,’ Kelly explained.”
The most common entry points for prosecutors include Title 26 crimes, such as filing false income tax returns and willfully failing to file a tax return. Karen notes that people involved in criminal schemes usually don't file their tax returns at all and don't include income from these crimes if they do. This low-hanging fruit provides a clear narrative for prosecutors and potentially opens a pathway for more serious charges behind the fraud and theft schemes, such as wire and mail fraud charges.
However, the government must dedicate significant resources in terms of both funds and talent to handle a large volume of cases. Criminal tax investigations and uncovering large-scale fraud schemes are not simple matters. “These are sophisticated investigations, but I think the IRS and U.S. Attorney’s office and the fraud section at DOJ have highly skilled and expert attorneys still there,” Karen told Forbes.
You can read the complete article here.
About Karen
The former acting head of the Justice Department’s Tax Division, Karen joined Kostelanetz after more than 30 years as a federal and state prosecutor, where she prosecuted tax and white-collar crimes. Her practice focuses on defending clients in government investigations, including in criminal tax and white-collar matters, and representing clients in state and federal civil tax controversies.
